California (Poverty And Taxes) And Texas (Jobs And Freedom): A Few Key Comparisons

Texas vs. California, a series of essays comparing America's two most populous states

Texas Public Policy Foundation

One in every five Americans call California or Texas home. Comparisons between the two most-populous states are useful because both states have diverse populations and economies, but vastly different politics. That, in turn, leads to divergent public policies in taxation and regulation—with very different outcomes.

Demographically, California and Texas both feature minority-majority populations, with the future face of America looking somewhat like a blend between the two states, if current immigration and birthrate trends persist. Along with Hawaii and New Mexico, the white, non-Hispanic population in California and Texas is well below half (though if the two most affluent demographic groups, white, non-Hispanics and Asians are considered together, they total 52.4% in California and 47% in Texas).

Yet in the 2016 presidential election, Hillary Clinton won California by 30% of the vote while Donald Trump won Texas by 9%, indicating that destiny isn’t entirely explained by demographics. Meanwhile, after the 2018 midterms, of California’s 53-member delegation in the U.S. House of Representatives, 46 are Democrats compared to 7 Republicans. Of Texas’ 36-member Congressional delegation, 23 are Republican and 13 are Democrats.

On the economic front, since the end of the recession in June 2009, Texas’ private sector seasonally adjusted job growth through April 2019 was 27.2% compared to California’s slightly weaker 23.9%. But California shed a far larger proportion of jobs during the recession than did Texas, so it had a deeper hole to climb out of. Extending the horizon by five years to January 2004 shows a far different story, with Texas adding 38.4% more private sector jobs, compared to California’s 21%—an 83% growth rate advantage for Texas.

Texas’ more rapid job growth is likely due in some measure to its tax and regulatory policies. According to the Tax Foundation, California’s business tax climate ranked 49th in the nation in 2018, compared to Texas at 15th. A key component in California’s weak ranking is that it features America’s highest individual income tax rate, 13.3%, making California’s the second-most burdensome income tax in the nation behind New Jersey. Texas has no individual income tax. California’s per capita state and local tax collections were $6,077 in 2016, the 8th-highest in the nation. Texas state and local government collected $4,020, ranking 29th.

How the states and their local governments spend their tax revenue is illuminating. Across the nation in 2015, states spent close to equal amounts on education and health and welfare, mostly Medicaid, about 31% for education in 2015 and 30% for health and welfare. Texas and California were at either end of the spectrum, however.

Regarding public education, 36% of Texas state and local funding is dedicated to education, compared to 26% in California. This drives California to have among the nation’s largest average student-to-teacher ratios, 22.5 students in average daily attendance per teacher in 2016, the 3rd-highest in the nation, compared to 14.2 in Texas, at 26th with the national average being 15.1 students per teacher.

This has contributed to the growing burden on California’s emergency room system, where the average patient now waits 5-1/2 hours or 336 minutes on average to be admitted, a full hour and 20 minutes longer than the national average and the fifth-longest wait times in the nation. California politicians are now debating whether to use state funds to extend their Medi-Cal coverage to illegal immigrants, with the only question being whether to cover all of those illegally in the nation or only those under the age of 26. Federal rules allow federal Medicaid spending on all people under 18, regardless of immigration status, so extending government coverage by 7 years to those under 26 would cost an estimated $98 million. Adding 26 to 64-year-olds would cost the state $3.4 billion annually.

In spite of California’s more generous social safety net and steeply progressive income tax system, it still has the nation’s highest level of poverty, according to the Supplemental Poverty Measure. When accounting for the cost of housing, the value of all government benefits, including noncash benefits such as food stamps and rental assistance, as well as out-of-pocket medical costs and taxes, California’s poverty rate is 19%. Texas’ Supplemental Poverty Measure as averaged over the three years 2015 to 2017, was 14.7%, within the margin-of-error of the national average, 14.1%. Proportionately, California had 29% more of its population living in poverty than did Texas—again, this statistic does account for out-of-pocket medical expenses.

Two big factors drive California’s higher poverty rate. First, new jobs outside of California’s booming tech sector haven’t kept pace with the population—a job is the best antidote to poverty. And second, a dense thicket of restrictive local zoning and environmental regulations that act to increase artificial scarcity of the state’s housing stock, inflating prices for everyone, especially the working poor.